China’s gold imports jumped almost
fivefold in the first 10 months from the entire amount shipped
in last year as concern about rising inflation increased its
appeal as a store of value, said the Shanghai Gold Exchange.

Imports gained to 209 metric tons compared with 45 tons for
all of 2009, Shen Xiangrong, chairman of the bourse, told a
conference in Shanghai today. China, the world’s largest
producer and second-biggest user, doesn’t regularly publish
gold-trade figures and rarely comments on its reserves.

Bullion soared 27 percent this year as the dollar dropped
on concern that the trillions of dollars governments are pumping
into the global economy may debase the value of currencies.
China has pledged to use price controls and may raise interest
rates a second time this year to slow inflation that has gained
to the highest level since 2008.

“The central bank may now be approving all gold import”
applications, Albert Cheng, managing director of the World Gold
Council’s Far East department, said in an interview. “The
government hasn’t officially said that China is encouraging
private gold investments, but we in the industry suspect it. And
you can see the big jump in the delivered gold imports through
the exchange has to be approved by them.”

Gold demand in China gained in the first half as government
measures to cool the property market and falling equities
spurred investment, the gold exchange said July 7. About 70
percent to 80 percent of the imports in the first 10 months were
made into mini-gold bars, which Chinese investors like to hold,
the exchange’s Shen said.

Inflation Expectations

“Given China is the world’s biggest gold producer, the
sharp increase in its imports is a big surprise,” said Hiroyuki Kikukawa, general manager of research at IDO Securities Co. in
Tokyo. “People there need to buy gold to hedge against
inflation as the country’s tightening monetary policy drives
investors from stocks and properties to gold.”

China’s consumer prices jumped 4.4 percent in October, the
fastest pace in two years, and above the government’s full-year
target of 3 percent. China’s central bank raised interest rates
in October for the first time since 2007 and ordered banks on
Nov. 10 and Nov. 19 to hold more money in reserve.

“The expectation for higher inflation has fueled great
interest among investors to hold physical gold, which led to
higher imports,” the gold exchange’s Shen said. The exchange
traded 5,014.5 tons of gold in the first 10 months, up 43
percent from a year ago, Shen said.

Investment Demand

Bullion for immediate delivery rose 0.3 percent to
$1,392.07 an ounce at 5:36 p.m. in Shanghai after yesterday
touching $1,397.50, the highest price since Nov. 12. The metal
reached a record $1,424.60 an ounce on Nov. 9 and is set for a
10th annual gain.

China’s investment gold demand may reach 150 tons this
year, up from 105 tons last year, the World Gold Council’s Cheng
said. That compares with 3 to 4 tons 10 years ago, Cheng said.

“The investment demand we estimate already reached 120
tons in the first three quarters, and it usually spikes in the
fourth,” Cheng said. Global investment demand for gold of 1,901
tons last year exceeded jewelry consumption of 1,759 tons for
the first time in three decades, according to London-based
researcher GFMS Ltd.

China’s gold market may double in the next decade as retail
investment and jewelry demand gain, the World Gold Council said
Nov. 3. Consumption may climb to 800 tons to 900 tons in the
next ten years, said Wang Lixin, the council’s Greater China
general manager. China’s jewelry and investment gold demand was
428 tons in 2009, according to the council.

Relaxed Rules

Sales of gold products such as bars by China National Gold
Group Corp., owner of the country’s largest deposit of the
metal, jumped as much as 40 percent in the first half, Song Quanli, deputy party secretary at the company, said July 7.

China’s central bank in August said that it would let more
banks import and export gold and allow overseas companies more
access to trading. Gold demand growth in China will likely be
supported by rising disposable income levels and the country
could surpass India as the world’s biggest bullion consumer,
Deutsche Bank AG said Aug. 6.

China’s plans to relax gold-trading rules may boost demand
and increase trading volumes on the Shanghai Gold Exchange, the
bank said. Demand will continue to grow, making China one of the
top importers together with India, IDO’s Kikukawa said.

Gold imports this year by India have already exceeded 2009
levels as consumers boost jewelry purchases, the World Gold
Council said Nov. 17. Imports totaled 624 tons by the end of the
third quarter, compared with 559 tons in all of 2009, according
to the council.

Output Grows

China’s gold output may rise to 340 tons this year, from
314 tons last year, solidifying the nation’s position as the
world’s largest producer, Zhang Fengkui, section chief of the
raw materials department at the Ministry of Industry and
Information Technology, said on Oct. 16.

The country should raise its gold holdings and its 1,054
tons of reserves are inadequate compared with the 8,133 tons
held by the U.S. and 3,408 tons by Germany, Meng Qingfa, a
researcher at the China Chamber of International Commerce, said
on Oct. 27.

Gold accounts for 1.6 percent of the reserves held by the
People’s Bank of China, according to the World Gold Council. The
country increased reserves by 454 tons to 1,054 tons since 2003,
the State Administration of Foreign Exchange said last April.